DEBT FINANCING. ESMA wants more facts on ETFs before acting

VIENNA (Reuters) - Europe's markets watchdog wants more information about what happened with an alleged rogue trader at Swiss bank UBS before deciding whether stricter rules on exchange-traded funds (ETFs) are warranted, its chairman told reporters.
But the European Securities and Markets Authority (ESMA) is worried nevertheless that complex ETFs are increasingly finding their way into the portfolio of retail investors keen to boost returns in weak markets, Steven Maijoor said.
"It is not clear whether the problem (at UBS) was inherently related to ETFs or whether it could have happened with any derivatives trading," Maijoor said.
"I think we need to wait for the facts to understand better what the problem there was."
UBS (UBSN.VX) said this month a trader had allegedly concealed the fact his trades violated UBS risk limits by executing fake ETF positions.
ETFs are index funds listed on an exchange and can be traded just like regular stocks. They try to replicate index performances and offer lower costs than actively managed funds, but regulators have warned about risks from some complex ETFs.
The instruments involved in the UBS case are similar to those that Jerome Kerviel, the rogue trader at Societe Generale (SOGN.PA), traded when he racked up a $6.7 billion (4.3 billion pounds) loss in unauthorised deals in 2008.
ESMA has been seeking comment on what it sees as inadequate regulation of listed complex ETFs sold under the EU-approved UCITS mutual funds framework.
Maijoor said UCITS products used to be simple and straightforward things like mutual funds, but have become increasing engineered.
"More and more complex products are ending up in the hands of retail investors and that is a concern for us. The question is do we need to rethink and have extra guidelines around this area," he said late on Wednesday.
"What we think needs to be closely looked at is whether these new products are solid, are safe and don't have any stability risks," he said, acknowledging ESMA was not yet in position to ban them should it see fit.
Discussing a ban on short-selling financial stocks that Belgium, France, Spain and Italy introduced in August and extended on Wednesday, Maijoor said he thought the curbs would end once market conditions normalise.
"When market circumstances would allow I understand they would like to lift the ban," he said.
(Reporting by Michael Shields; Editing by Toby Chopra)

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